Should we call a wambulance?

[CommonMan]

Everyone on SDN clearly is a fabulous accountant 😉

As a non doctor it is very interesting to me how many people here post tax explanations. The vast majority don't understand how complex our country's tax system really is. I guess its better to make such posts here and not on a CPA forum. I've never been tempted to post an anesthesia explanation.

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[CommonMan]

The tax law is a significant wealth transfer to the top .5%. The real harm of it is the republicans are telling the country that deficits don't matter. Now Bernie can tell us that since deficits are meaningless why not run them a little higher and give everyone a livable income, regardless of if you actually work, free health care, free college and we all live the good life.
I hope I'm not around for the collapse.
This is a good lead in to another best survival firearm to buy thread.

 

[pgg]

I have been missing out on this. DAF is the way to go as far as I am concerned. Even WCI is on board now:

Our Donor Advised Fund with Vanguard Charitable | The White Coat Investor - Investing & Personal Finance for Doctors

Although I am typically a huge fan of Vanguard -- and despite what WCI is recommending in the very post I linked -- I would suggest looking at the expense ratios, fees, minimum contributions to open, and minimum ongoing contributions from multiple companies (eg Fidelity vs Vanguard). Also, note Vanguard retirement/brokerage is not the same as Vanguard DAF.

HH

Can you explain what the point of a DAF is?

It seems like a way to get a 3rd party and some fees involved in the process of giving away your money. How does this do anything other than give some money to Vanguard?

 

[Hamhock]

Can you explain what the point of a DAF is?

It seems like a way to get a 3rd party and some fees involved in the process of giving away your money. How does this do anything other than give some money to Vanguard?

As I said, I am just starting to realize the DAF benefits and I am certainly not an expert.

However, to my eye, the most immediate benefits are the avoidance of capital gas taxes and taxes on dividends.

Money grows tax free. And can be exchanged for donated cash at any point without paying any of the applicable taxes.

I am just a neophyte here and I would refer you to the Bogleheads forum for more complicated questions and tax-avoidance techniques.

HH

 

[pjl]

Can you explain what the point of a DAF is?

It seems like a way to get a 3rd party and some fees involved in the process of giving away your money. How does this do anything other than give some money to Vanguard?

I donate roughly 10% of my income annually. I do this every other year, and take the standard deduction the other years. So I donate roughly 20% every other year.

I can donate stocks or cash. If I donate stocks, I can buy a similar but different stock fund and increase my basis. The tax I would pay on my gains is then not owed.

When the stock market drops significantly, like in December, I can sell my stocks I bought at a higher basis, and deduct the losses. Then I can buy a slightly different fund immediately.

So you harvest some gains into your DAF, and your losses are harvested to decrease tax burden.

Last year was a donation year for me from a tax standpoint, I initially had almost no money in my DAF that I could give to the actual places I donate. By September I had put the amount I wanted to donate for the 2 years in there, and distributed ~1/2 to the charities I wanted.
I also increased my basis by ~20% rather than donating cash, and now have this years donations sitting there awaiting actual deployment. One could just donate the stock, but if you wait, and end up in a December like last year, you don’t get as much bang for your buck as doing it when you know you have had some appreciation.

In the end it is a way to give a little more to charity, and is only really worth it if you give larger amounts. For me, some of the charities I give to aren’t the best at budgeting for lumpy donations and I feel they do better when given consistent smaller donations.

 

[urge]

Then every state should get an exact dollar returned in federal aid for every dollar paid in federal taxes. No more welfare for Alabama.

Your theory is the exact same line that the state propaganda network used to push the unpopular tax plan through. The bottom line is the cap on the SALT deduction was put in place to pay for the tax cuts to the political donors. That is the explanation, plain and simple.

I really think companies should pay no taxes. Let the owners of the company pay the taxes over the profit. Not the company itself.

You can argue that the companies can accumulate gazillions of dollars and the owners not take an earning in order not to pay taxes. Eventually the owners will realize they either need to invest the money creating more jobs in the process, or take a distribution to enjoy the earnings and pay taxes on them.

Can you imagine the amount of jobs that would be created this way? Each of us would have like 5 companies.

 

[d9sccr]

Then every state should get an exact dollar returned in federal aid for every dollar paid in federal taxes. No more welfare for Alabama.

Your theory is the exact same line that the state propaganda network used to push the unpopular tax plan through. The bottom line is the cap on the SALT deduction was put in place to pay for the tax cuts to the political donors. That is the explanation, plain and simple.

That’s a simplistic take. Don’t forget Silicon Valley isn’t composed of Californians alone - lots of states have essentially donated talent and collect no net benefit from that. Which states contribute recruits to the armed services? Food contribution? Raw materials? Etc, etc.

Individual state programs and projects don't necessarily provide a net benefit for other states. Residents have the right to vote for what services they want within their respective states and unlike at the federal level, change happens.

Sooner or later there's going to be a reckoning in which we, as a country, finally decide it's a spending problem.

 

[mmag]

Can you explain what the point of a DAF is?

It seems like a way to get a 3rd party and some fees involved in the process of giving away your money. How does this do anything other than give some money to Vanguard?

DAF benefits you from a tax perspective and the charity.

Simplified example:
Because of the SALT limit and higher standard deductions, it's now harder to get to a point where it makes sense to itemize. Standard deduction for 2018 for married filing jointly is 24k. SALT limit is 10k. Say you have 10k in mortgage interest. You'd have to make at least 4 k of charitable donations to for any of it to be deductible against your income.
If you donate 3k then your itemized deduction would be 10k SALT+10K mortgage interest + 3k charity < 24k so you take the standard deduction. Thus no real incentive for you to donate because your 3 k donation did not lower your taxes. Over two years you shielded 48 k of income.

With a DAF you can lump your contributions and take a deduction the year you contribute to the DAF and then distribute the money however you want whenever you want. If your budget is 3k a year as above, you do put in 6k every other year. Year 1 10k SALT+10K mortgage interest + 6k DAF(charity) > 24k so you deduct 26k. Year 2 10k SALT+10K mortgage interest < 24k so you take the standard. Over two years you shielded 50k of income. You can optimize even more by making your DAF donations in the years when you have more income and in a higher bracket.

If you want to donate appreciated stock, a DAF is even better. Say you have $3000 bucks of stock that you got at $2400. If you sell the stock, you'd get $3000 but you'd pay up to 20% capital gains tax so you'd only be getting $2880 possible deduction (see above) and the charity gets $2880. Some charities do accept stock but they may pay steep processing fees to sell and the smaller ones don't at all. You can donate your stock to the DAF and then have the DAF sell the stock for a small fee and the charity gets a check for for almost $3000 instead of $2880. You also can get the full deduction off that 3k if you alternate years fund a DAF.

You can also switch up your investments within a DAF without incurring capital gains. Put your crazy high FB stock in and swap it for bonds. If you are doing alternating year contributions, the charities you support is getting all of the interest or any gains that accumulates during that time too. If your DAF portfolio loses money, it doesn't change your tax deduction. If you put in 3k of FB stock and it tanks a week later to 2k when you disperse that money, you still get a 3 k tax deduction.

 

[anbuitachi]

DAF benefits you from a tax perspective and the charity.

Simplified example:
Because of the SALT limit and higher standard deductions, it's now harder to get to a point where it makes sense to itemize. Standard deduction for 2018 for married filing jointly is 24k. SALT limit is 10k. Say you have 10k in mortgage interest. You'd have to make at least 4 k of charitable donations to for any of it to be deductible against your income.
If you donate 3k then your itemized deduction would be 10k SALT+10K mortgage interest + 3k charity < 24k so you take the standard deduction. Thus no real incentive for you to donate because your 3 k donation did not lower your taxes. Over two years you shielded 48 k of income.

With a DAF you can lump your contributions and take a deduction the year you contribute to the DAF and then distribute the money however you want whenever you want. If your budget is 3k a year as above, you do put in 6k every other year. Year 1 10k SALT+10K mortgage interest + 6k DAF(charity) > 24k so you deduct 26k. Year 2 10k SALT+10K mortgage interest < 24k so you take the standard. Over two years you shielded 50k of income. You can optimize even more by making your DAF donations in the years when you have more income and in a higher bracket.

If you want to donate appreciated stock, a DAF is even better. Say you have $3000 bucks of stock that you got at $2400. If you sell the stock, you'd get $3000 but you'd pay up to 20% capital gains tax so you'd only be getting $2880 possible deduction (see above) and the charity gets $2880. Some charities do accept stock but they may pay steep processing fees to sell and the smaller ones don't at all. You can donate your stock to the DAF and then have the DAF sell the stock for a small fee and the charity gets a check for for almost $3000 instead of $2880. You also can get the full deduction off that 3k if you alternate years fund a DAF.

You can also switch up your investments within a DAF without incurring capital gains. Put your crazy high FB stock in and swap it for bonds. If you are doing alternating year contributions, the charities you support is getting all of the interest or any gains that accumulates during that time too. If your DAF portfolio loses money, it doesn't change your tax deduction. If you put in 3k of FB stock and it tanks a week later to 2k when you disperse that money, you still get a 3 k tax deduction.

but im confused about the logic behind this. you spent 6k in post tax money to put yourself over the 24k for the deduction. over 2 years you shielded 50k in income.. If you didn't donate you wouldve shielded 48k just from standard deductions without having to donate 6k of your own money. you still come out behind. so in the end, you dont really benefit, the charity does. the only difference is you benefit compared to the you tossing 6k to the garbage.

 

[GravelRider]

That’s a simplistic take. Don’t forget Silicon Valley isn’t composed of Californians alone - lots of states have essentially donated talent and collect no net benefit from that. Which states contribute recruits to the armed services? Food contribution? Raw materials? Etc, etc.

Individual state programs and projects don't necessarily provide a net benefit for other states. Residents have the right to vote for what services they want within their respective states and unlike at the federal level, change happens.

Sooner or later there's going to be a reckoning in which we, as a country, finally decide it's a spending problem.

Don’t say that high tax states have been taxing their citizens at the expense of low tax states because that is simply false. It was a politically convenient way for the accounting to work to allow the middle class to fund a tax cut for the rich. Any other argument is fancy propaganda from the state news.

 

[mmag]

People donate to charity for a variety of reasons. If you are going to donate any significant money to charity anyways, then a DAF would be the way to go. There are certainly people who would never part with even 1 cent of their money if they didn't have to - in that case your point is absolutely correct.

but im confused about the logic behind this. you spent 6k in post tax money to put yourself over the 24k for the deduction. over 2 years you shielded 50k in income.. If you didn't donate you wouldve shielded 48k just from standard deductions without having to donate 6k of your own money. you still come out behind. so in the end, you dont really benefit, the charity does. the only difference is you benefit compared to the you tossing 6k to the garbage.

 

[urge]

Don’t say that high tax states have been taxing their citizens at the expense of low tax states because that is simply false. It was a politically convenient way for the accounting to work to allow the middle class to fund a tax cut for the rich. Any other argument is fancy propaganda from the state news.

You are nuts.

 

[GravelRider]

You are nuts.

Probably

 

[pjl]

but im confused about the logic behind this. you spent 6k in post tax money to put yourself over the 24k for the deduction. over 2 years you shielded 50k in income.. If you didn't donate you wouldve shielded 48k just from standard deductions without having to donate 6k of your own money. you still come out behind. so in the end, you dont really benefit, the charity does. the only difference is you benefit compared to the you tossing 6k to the garbage.

Yes, in the sense that you get no more money from doing it, that is true. However, you can give more money to the charity for the same cost to you by doing this. So I can either give less for same impact, or give more.
I only fund my DAF if I have appreciated stocks. Otherwise it would be a tiny amount worse than just giving cash.

 

[pjl]

Yes, in the sense that you get no more money from doing it, that is true. However, you can give more money to the charity for the same cost to you by doing this. So I can either give less for same impact, or give more. For a couple grand it doesn’t make a difference, and isn’t worth your time. For people who give tens or even hundreds of thousands, it can be a big deal.

I only fund my DAF if I have appreciated stocks. Otherwise it would be a tiny amount worse than just giving cash.